Wholesale price inflation stayed in the negative zone for the sixth month in a row, easing to -2.65% in April — its lowest since the current series was introduced in April 2005 — on a broad-based slowdown following the global commodity price crash, showed the official data released on Thursday.
Coming on the back of a moderation in retail inflation to a four-month low of 4.37% in April, the drop in the wholesale price index (WPI) raised hopes of a rate cut by the Reserve Bank of India (RBI), which will review the monetary policy next on June 2, as some of the high-frequency data have revealed a persistent weakness in the economy.
Industrial production growth hit a five-month low and core sector expansion touched a 17-month low in March, exports contracted for a fourth straight month to a 67-month trough in April, HSBC manufacturing PMI for April fell from the previous month on weak domestic orders, net sales of two-wheelers and tractors contracted and growth of non-food credit of commercial banks decelerated (at 8.6%).
The continued benign trends in inflation and inflation expectations “could provide room for further easing”, says a Barclays Research note.
Although chances of a rate cut to spur economic growth seems high, some analysts also feel the recent forecast of a 7% drop in seasonal monsoon showers and its potential impact on inflation may still weigh on the RBI to hold rates, although the probability is very less.
Although the impact of recent unseasonal rains on food prices has been much less than feared, food inflation has persisted at elevated levels in both WPI and the consumer price index (5.73% and 5.11%, respectively, for April). The farm ministry projected on Wednesday a 5% drop in grain production in the current crop year through June. A favourable base may help keep food inflation relatively lower in the coming months. The RBI has targetted to keep retail inflation within 6% by January 2016.
Core inflation slowed down for the sixth straight month to -0.4% in April, marginally lower than the previous month.
Core WPI inflation had hit the negative territory in March after a gap of 65 months, although analysts believe the RBI may not read too much into it.
“Factors such as the recent firming up of prices of some commodities like crude oil (and the lagged impact of the same on fuel prices) and the depreciation of the rupee may prevent the WPI inflation from recording a further sizeable fall,” said Aditi Nayar, senior economist at Icra.
The February WPI inflation has been revised down to -2.17% from -2.06% announced earlier.
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